Loss Aversion

What is it?

Consumers are more willing to take risks in order to avoid losing things than to pursue gaining things. The psychological pain from losing is twice the amount of the pleasure of a gain – People tend to be more sensitive to losses than to gains.

How can I use it in my favour?

This was experimented with an Italian telecom company that was trying to increase its customer retention after it raised customer rates. Customers were calling to cancel, and to counteract this, agents at the call center originally offered a simple exchange – Customers would get 100 free calls if they would agree to not cancel. Subsequently agents were asked to instead tell the customer they were already entitled to the 100 free call – “We have already credited your account with 100 calls—how could you use those?” It turned out customers felt more perturbed by the idea of giving up the free talk time they thought they already owned than the excitement to earn free calls by accepting the rate increase.

Marketers can promote products in a way that demonstrates their purchase will help them to avoid loss.